Uniper Market Insights | Special Edition: Biomethane & Bio-LNG

00:00:00: What are like the main, sectors it's use currently.

00:00:03: Now, the quality is a bit higher.

00:00:05: The biogas is being processed to biomethane.

00:00:08: You can use it in transport.

00:00:10: A new application is the shipping sector with new regulation.

00:00:14: It's also getting more attractive to bring the Bio-LNG

00:00:16: into the shipping sector.

00:00:22: Hello and welcome

00:00:23: to a special episode of Uniper’s Market Insights.

00:00:26: Today we will talk about biomethane and Bio-LNG.

00:00:30: And for that on my side as usual is our specialist Gregor Pett.

00:00:33: Hi, Gregor! Hello.

00:00:35: Hi Florian. And our specialist from the market analytics team, Ralf Wagner.

00:00:40: Hi Ralf. Hello, Florian. Hello Gregor.

00:00:43: I think what's interesting to the people watching or listening.

00:00:45: Biomethane Bio-LNG

00:00:47: How did you end up with that topic?

00:00:50: First of all, from my youth,

00:00:52: I come from a rural area and I could smell sometimes.

00:00:56: No, but jokes aside, the real reason was that Uniper wants to decarbonize its,

00:01:02: grey gas portfolio or fossil portfolio and wants to have more green molecules.

00:01:07: And one approach to do that was actually to invest

00:01:11: in a portfolio of bio gas and biomethane plants at the time.

00:01:15: But due to some, yeah, acquisition bans

00:01:18: resulting from the 2022 crisis, we could not do that.

00:01:22: But we did all the analysis to value such a portfolio.

00:01:26: And that's what I took.

00:01:27: Then under my umbrella with some colleagues.

00:01:30: And that is how I came to the topic.

00:01:32: And it fascinated me.

00:01:33: So I continue to see that work.

00:01:35: And today I am supporting the portfolio team and the bioenergy team.

00:01:40: Okay. Shipping team.

00:01:42: Yeah, I did an internal piece a couple of years back about that topic,

00:01:45: and that is really a very interesting topic.

00:01:47: So, we are really happy that you are here today, but let's step back a little bit.

00:01:52: What is biomethane? Bio-LNG?

00:01:54: I mean, Ralf has said it already.

00:01:56: I mean, it's I also grew up on the village. And I could smell it.

00:01:59: It's, basically, produced, it's methane produced mainly by animals.

00:02:04: Yeah. So and, I mean, we all do that.

00:02:07: Also, human beings produce biomethane once in a while.

00:02:10: You can also produce it from substrate using bacteria.

00:02:14: But that in most cases

00:02:17: it's manure as in dung, which you have in heaps in villages.

00:02:22: Yeah, yeah.

00:02:22: And that is

00:02:23: then used to extract the, the, the bio methane from from these basically.

00:02:27: And it's, given that these things usually go to waste, it's actually a very,

00:02:33: efficient and very ecological

00:02:35: friendly, way of producing at the end methane.

00:02:39: Yeah.

00:02:40: You can also use, waste from plants.

00:02:43: And that is also getting more and more common in the past,

00:02:46: you actually used plants, but they are often being

00:02:50: thought in competition with food or other utilization.

00:02:54: So it's getting more and more common

00:02:56: that you use either menure, waste or industrial waste even.

00:03:00: Yeah.

00:03:01: And it's used in all kinds of, sectors.

00:03:03: We will talk about, blending later on,

00:03:08: when it comes to gas blending, for,

00:03:12: for the household. What are like the main, sectors, it's used in currently.

00:03:16: Yeah.

00:03:17: In the past it was in Germany at least, mainly used as biogas

00:03:21: so that this, prior stage of producing biomethane

00:03:25: and it was actually used to produce power and heat.

00:03:29: Yeah, very locally, often in, district heating.

00:03:33: Now, the quality is a bit higher.

00:03:35: The biogas is being processed to biomethane.

00:03:39: And here you can also use it for the power sector, but injecting it

00:03:42: into the distribution or the oil grid, you can use it in transport.

00:03:47: So we sell for example, gas also to the truck sector also in the form of biology.

00:03:53: But and you application is the shipping sector.

00:03:57: This new regulation, it's also getting more attractive

00:04:00: to bring the bio entry into the shipping sector.

00:04:03: And you can also use it for everything what you use gas for.

00:04:06: Yeah.

00:04:06: Because chemically it's more or less the same product.

00:04:10: And the

00:04:10: why is it suddenly getting so popular from the transport and shipping sector?

00:04:14: Yeah.

00:04:14: Because you can, earn a cream premium on your,

00:04:19: biomethane comparison to create gas

00:04:21: and you can actually get compliant under certain regulations like, right.

00:04:27: Three and

00:04:29: and fuel it or maritime.

00:04:31: And it also saves you that you to s costs.

00:04:34: Also ships have to pay you to s costs.

00:04:36: So the so-called it will allowances and you're safe that with biofuels

00:04:40: even if maybe the production costs are sometimes higher than the crackers.

00:04:45: But currently with prices of €7,080 per megawatt hour of crackers.

00:04:49: Yeah, I think we are already more or less on par.

00:04:52: Yeah, but on top you save all these environmental costs

00:04:56: and avoid the external effects of fossil fuels, okay.

00:04:59: And politically it's also a security of supply measures.

00:05:03: So you don't have dependency for biomethane on countries

00:05:07: where the supplies may be disrupted. So that's another advantage.

00:05:09: But as Robert has said, it's, more expensive than to offer to produce.

00:05:14: So that's the catch right now.

00:05:16: I'm not necessarily so at €80, but I don't think that is sustainable.

00:05:20: Yeah. You're already on production cost level.

00:05:22: You are very close and you have the investment in Europe.

00:05:25: You have the, value creation in Europe.

00:05:27: It's very attractive at the moment at least. Yeah.

00:05:30: There were other times where it was not so attractive, but currently this

00:05:34: and yeah, the catch is that it's still subject to regulation.

00:05:38: Yeah.

00:05:38: I mean, under normal situations you need,

00:05:42: a strong

00:05:43: value of the environment environmental component,

00:05:46: such as the CO2 avoidance or the methane avoidance.

00:05:50: And if that, value is too low,

00:05:53: you would rather use the fossil fuel.

00:05:56: But maybe another benefit is that from a biomethane plant,

00:06:00: especially when you upgrade biogas to biomethane,

00:06:03: you also get other products, for example, fertilizers.

00:06:07: You can get biogenic CO2 and for example, biogenic CO2.

00:06:11: You can then use to produce methanol.

00:06:14: So it can go into certain forms of other value streams.

00:06:18: And it's not only the biomethane that has a value or so

00:06:21: I would even say it.

00:06:23: Biomethane plant is more like a refinery.

00:06:25: Yeah.

00:06:26: Than just, a plant to produce gas.

00:06:29: Yeah.

00:06:30: And you previously mentioned as well fuel,

00:06:33: you, maritime and also read three.

00:06:37: These regulations are. Yeah.

00:06:39: Yeah.

00:06:40: Both need to be implemented on European level.

00:06:43: What's the difference?

00:06:44: The difference is, that, fuel or maritime

00:06:47: is uniformly applied across all member states in the EU.

00:06:51: Also, all member states in the EU and even some countries outside

00:06:55: the EU like Norway, Iceland, they are facing the same regulation.

00:07:00: Yeah.

00:07:01: So the goal is to reduce the carbon intensity of the shipping sector

00:07:05: related to Europe by a certain percentage in five year steps,

00:07:10: and then hopefully go to carbon neutrality by something like 2060.

00:07:15: And the red is a renewable energy directive here.

00:07:20: Different countries have agreed on different reduction targets

00:07:24: for for CO2 in the in the transport and household sector

00:07:28: and industry sector, so to speak, about the transport sector.

00:07:32: Yeah.

00:07:32: You a country has the possibility to either

00:07:36: implement a certain share of renewables until 2030

00:07:39: or to reduce the emissions intensity under 2030 here and here.

00:07:44: Every country has the right to implement it on its own way.

00:07:49: Yeah.

00:07:49: So it's not a uniform European regulation like fuel IT or maritime.

00:07:53: So that is why we have 27 regulations.

00:07:57: And in principle all these regulations would have been implemented

00:08:00: into national laws by May 2025,

00:08:04: but only two countries or one country was able to do that.

00:08:09: All others are in delay.

00:08:10: Germany implemented it this year.

00:08:12: Very strong regulation.

00:08:14: Other countries have less stringent regulations.

00:08:17: So this, yeah, country by country approach has not proven to be so effective.

00:08:23: I must say there are a lot of delays and that creates a lot of

00:08:27: uncertainty, regulatory uncertainty.

00:08:29: And that is one of the catch for biomethane is.

00:08:32: That so what what needs to to happen on that stage.

00:08:36: Yeah.

00:08:36: I mean or I've has said it,

00:08:38: I mean the devil is in the details when it comes to the regulation.

00:08:41: Regulation needs to be, very clear and it needs to send the right signals.

00:08:46: So because clearly there is some starting help then needed from the regulation.

00:08:51: And the more complexities and the more volatile

00:08:54: that that is an uncertain, the less people will invest.

00:08:57: It's also fair to say

00:08:58: that when we are talking about these structures, I mean, you are

00:09:02: it's a very local structure.

00:09:03: So you have farmers involved to provide the,

00:09:05: the material for the gas, for the biogas.

00:09:07: So about biomethane and, so it's it's

00:09:10: it's not very few big players, but it's a lot of, small players.

00:09:14: And so the regulation needs to be really easy to understand.

00:09:18: And you can't hire a lot of consultants to understand what you're doing.

00:09:22: That makes it slows it down. Yeah.

00:09:23: You need to do that so that that would be helpful if it's easier.

00:09:27: Yeah.

00:09:28: And you also have sometimes, a lot of market power

00:09:32: and certain phases of the value creation,

00:09:35: for a phase, for example, in Germany you have just around,

00:09:39: I would say four terawatt hours of trucks.

00:09:42: So, the equivalent of four terawatt hours

00:09:44: of trucks that can take your LNG and there is contradicting

00:09:49: regulation on EU level by the fleet regulation that is not,

00:09:54: actually accounting for the

00:09:56: full environmental value of bio LNG because bioenergy,

00:10:01: for example, produced from a newer or waste can even have a negative Cisco.

00:10:06: So it avoids more than the CO2.

00:10:09: It is carbon intensity. Yeah.

00:10:11: You know, carbon intensity.

00:10:13: Whereas, the fleet regulation

00:10:15: has a tank to tailpipe regulation that is always positive.

00:10:19: So if you want to avoid emissions from a tank to tailpipe perspective

00:10:24: at some point in time, you need to close the combustion

00:10:27: engines and also the bio energy tank,

00:10:31: trucks, even if they have a very positive environmental value.

00:10:34: If you look at from the full cycle of, carbon intensities.

00:10:39: Okay. And so,

00:10:41: and I'm always curious on, on how things are done and logistically as well.

00:10:46: And, you know,

00:10:47: when we take a look at measuring the whole value chain, what you mentioned,

00:10:51: who does that? How does that work?

00:10:53: Yeah, there are internationally recognized, recognized certifiers

00:10:57: that is that they they have to be approved and,

00:11:01: under the right system and, they look from

00:11:06: more or less the

00:11:07: substrate to the production process to transport

00:11:11: to the liquefaction process and to what the end customer sometimes is doing.

00:11:15: Yeah.

00:11:16: So they are measuring certain, CO2 emissions and even methane emissions.

00:11:22: So the whole complex of GHG emissions,

00:11:25: greenhouse gas emissions along the whole value chain.

00:11:28: And so when you get a certificate, you can really see

00:11:32: how it adds up, to, to the end customer.

00:11:36: And the interesting thing is that bio LNG can still be extremely negative,

00:11:40: when it comes to carbon incentives here, you could even say I can

00:11:44: I can use one, megawatt hour of craziness and compensated with one megawatt

00:11:50: hour of biomethane if it has a very negative sea ice.

00:11:54: So it has a leverage effect. Yeah.

00:11:56: You can use both at the end and you are still carbon neutral.

00:12:00: And I think you have actually one of these certificates here.

00:12:02: I think we can probably show it to the audience.

00:12:04: Yeah. Yes, yes, for sure.

00:12:06: We will at that later on with our big, big budget, for pictures.

00:12:11: Yeah. Of course. No end.

00:12:14: We previously mentioned that as well in the beginning.

00:12:16: It's relevant to all of us that,

00:12:19: thinking about, getting new gas heating as well.

00:12:22: The so-called blending. Well, what stands behind that?

00:12:26: Yeah, the blending mandate,

00:12:28: several countries across Europe are now applying blending mandates.

00:12:31: For example, the frontrunner, I think, was Denmark.

00:12:34: They said by 2030 they want to have 100% green gases

00:12:39: in their with no fossil, no grade gas anymore.

00:12:42: They are now about one third of the way.

00:12:44: So in around four years they need to triple their

00:12:49: or at least increase that biomethane.

00:12:52: So to get 100% Sweden recently joined that.

00:12:56: So while these Scandinavian regions want to get carbon neutral by green gases,

00:13:01: and now Germany also applies a blending mandate,

00:13:04: they are currently discussing how that could look like,

00:13:07: the most likeliest outcome is that from 2021, we get 1% blending mandate.

00:13:13: To start with.

00:13:14: Yeah, that implies very small volume.

00:13:16: So 250 gigawatt hours or 300.

00:13:19: It's not clear.

00:13:21: But that will probably be an energetic target.

00:13:23: So only saying you have to feed 250 to 300

00:13:27: gigawatt hours of, energy into the system,

00:13:30: which comes from biomethane or other green cases.

00:13:33: And then from 2028, but also already applied to now

00:13:38: you have to also, cope with the bio staircase.

00:13:43: The steps that builds up over time. Yes.

00:13:46: It starts with 10% of, biomethane

00:13:50: that needs to be accounted for, boilers

00:13:53: with which switched after July this year.

00:13:56: Yeah.

00:13:56: So they need to be supplied with, additionally, 10%

00:14:00: of, green gases from 2029 onwards.

00:14:04: And that is also then going up so that we can be carbon neutral by 2045.

00:14:10: Okay.

00:14:11: So the plan is then to stimulate that demands

00:14:13: and to create a demand for so to stimulate the supply of these sources.

00:14:17: Yeah, exactly.

00:14:18: And anyway, expect heating demand to decline, in Europe.

00:14:22: Yeah.

00:14:22: Due to the, decarbonization process,

00:14:26: the effort will not be extremely high to reach these targets.

00:14:30: So it can be achieved.

00:14:32: And if we account for the full value, carbon value of, biomethane

00:14:37: at some point in time, some great gas could still be remain in the mix.

00:14:41: If there is, negative ice calls from biomethane.

00:14:45: So it's a very interesting experiment.

00:14:47: Now, I would call it in Germany.

00:14:49: So and it could keep gas as an alternative to power in the heating system.

00:14:53: Yeah.

00:14:54: Maybe for some regions, for some customers it's very attractive to do that.

00:14:58: Yeah. Yeah. And it hopefully stimulates that kind of

00:15:02: vicious circle

00:15:03: then self and self-supporting self enforcing.

00:15:06: So it's really good.

00:15:07: And security of supply wise, it's obviously

00:15:09: also a good, good idea to do that.

00:15:11: Very interesting topic.

00:15:13: So I very much for putting a little bit more life into, into that topic as well.

00:15:19: And I think we can all summarize, you know, that we are all three

00:15:22: from a rural area and not a smell of this topic.

00:15:27: And, of course, we will continue to fill this topic

00:15:30: with live, in further episodes of, Universe Market Insights.

00:15:34: But at this point, I've.

00:15:35: Thank you very much for your insights.

00:15:37: Thank you. There you go.

00:15:39: And to you are there.

00:15:40: Thank you very much. Until next time. Bye bye.